Maine Adopts Annuity Best Interest Regulation

State adoption of annuity best interest rules based on a suitability model update developed by the National Association of Insurance Commissioners may be accelerating.

Maine recently became the 15th state to move to the NAIC’s model, when the Maine Bureau of Insurance adopted a regulation based on the model update.

The list of other states that have signed on, by adopting regulations or passing laws, includes Montana, Texas, Alabama and Virginia, according to the American Council of Life Insurers (ACLI).

The ACLI and the National Association of Insurance and Financial Advisors have put out joint letters welcoming the recent flurry of NAIC suitability model update adoptions.

The NAIC model update sets a “best interest” standard for annuity sellers, meaning that sellers must put customers’ interests ahead of their own. The measure is structured as a revision of an existing annuity sales standards regulation. State insurance regulators worked to make the model compatible with the U.S. Securities and Exchange Commission’s Regulation Best Interest, or Reg BI.

The model requires annuity sellers to show that they have acted in the best interest of the customers, but it permits the sellers to collect sales commissions and participate in some kinds of sales contests.

Some have argued that the Reg BI-based approach may be too vague to have much effect on annuity sellers.

Others, including representatives from the Independent Insurance Agents and Brokers of America, have suggested that the Reg BI-based approach is so vague that it could lead to annuity sellers facing lawsuits.

Paul Van Ginhoven, the compliance director at Financial Independence Group Inc., an insurance marketing organization, has written in a blog that insurance-only agents will have to set up the kinds of recommendation documentation processes that registered securities representatives typically learn from their compliance departments.

“From a compliance perspective, documentation is your primary defense when it comes to the potential bad situations that could pop up in the future (for example, customer complaints, regulatory inquiries, and lawsuits),” Ginhoven says.

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